How Incentives can Improve Employee Engagement?

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How Incentives can Improve Employee Engagement?


Incentives are something provided by organisations in addition to regular remuneration to drive performance in their employees. At times, these incentives are monetary and in others they are monetary equivalent incentives such as paid vacations, prizes, etc. Incentives and punishments are widely used all over the world as a tool to enhance the performance of employees. The common mindset is- if you give something extra to get a job done, employees will be more motivated to focus on completing the job. 

This traditional belief seems to be standing tall for ages without even being challenged. Even in today’s modern workplace, leaders who are considered forward thinking, who promote team work and continuous improvements, have been found to advocate use of rewards to strengthen these very agendas that they vocally solicit. So, does this approach of incentiviza¬tion really work?

Many behavioural scientists debate that the approach of incentivizing better performances is linked by the employees behaviour to punishment for under performance. Hence, incentivization is rated the same as punishment by the behavioural mindset of employees. This results in a temporary enhancement in performance of the employees but the same is not long lived. The behaviour might change for a short period but shortly enough, people will revert back to their original behaviour.

For example, rewarding someone for quitting smoking or losing weight might work for a certain period but it will not bring about a behavioural change in the person to completely quit smoking or continuously work to maintain their weight even when there is no scope of incentives. Unless there is a behavioural change in the mindset, people tend to relapse to their old self shortly.

Some psychologists term incentives or rewards as extrinsic motivators. These extrinsic motivators do not work as a catalyst to maintain a long-lived commitment through behavioural change reflecting through performance improvement, but work as short term performance enhancers. Hence in the long run it is not necessary that this approach bear the same fruit as in the short term.

Social scientist Alfie Kohn has observed in the Harvard Business Review that, “Incentives do not alter the attitudes that underlie our behavior. They do not create an enduring commitment to any value or action but temporarily change what we do.”

It is true that money buys what we need. However, many studies in the past have given surprising results when employees were asked what mattered to them the most. “Pay” ranked typically below 4th or 5th priority. There is no firm basis to assume that paying people more will make them more productive. If someone’s take home pay was cut into half, obviously the effect of this might get reflected in his or her performance. But, if the take home pay of this person was doubled, it does not necessarily mean that there would be a drastic improvement in the person’s productivity.

The carrot and stick approach is still the basics followed by the majority of organisations across the world. Carrot being the sweet reward for a job well done and the stick being the punishment for failing to complete the job. As argued by a popular author, Dan Pink- the carrot and stick approach may prove effective for simple tasks, but it will not hold the same effectiveness in terms of getting complex tasks done over the long term.

Let’s take an example of an employee working in a production line where his/her core job is to assemble as many items as he can in a shift. The process is automated and all he has to do is assemble the items. There is no complex strategising involved. If this employee is offered an incentive to assemble 20 percent more items in his shift, there may be a clear improvement in his performance which is driven by the incentive involved. 

Similarly, let’s now consider an employee of a financial institution or a Fund manager company. If this employee is offered an incentive for closing more deals within a given time frame, the outcome might not be the same as in the case of the production line employee. The reason being, the latter role involves aspects of strategising, product knowledge, need based sales approach, etc. to name a few. Hence, in this case incentivising might not be an effective tool to drive performance behaviour.

Punishment and rewards are similar in their core sense. “Do this, and you will get that” sums up reward whereas “Do this or else this is what will happen to you” sums up punishment. Managers use both these as tools to manipulate their subordinates. Overtime this feeling of being controlled is likely to be assumed the same as punishment by the employees. Using the tools of reward and punishment, managers knowingly/unknowingly create an environment that is devoid of conducive aspects of a workplace where the employees feel restricted about progress and exploration. 

On the other hand, in its extreme sense, when an organisation is too dependent on Skinnerian management or compensation system, employees are likely to lose interest in their job and seek some extrinsic compensation before putting in any effort. On the other hand this approach might also invite unethical practices in employee behaviour. To attain the end reward, employees can resort to ways that they deem plausible to gain the end result without considering the compromise of ethical values in the course. 

Thus in a way Incentivization is inclined towards depicting the workforce as machines that should continuously churn out numbers and it discounts the risks of unethical behaviour within the workforce. However, the more important aspect is the exploration of how adequately the workforce is equipped to deliver what is expected from them.

So, what might actually work?

Many organisations are still yet to get over the conventional wisdom which plainly focuses on the idea that people will work harder and smarter in order to earn more. Hence, the only solution in their terms for a more engaged workforce is rewards and monetary benefits. They still consider better pay as the dominant factor in better staff engagement. Pay does play a role in driving the performance behaviour of employees, but it is not the only driving force. It has already been discussed above that in many researches it was seen that “pay” held the 4th or below rank in an employee’s priority ranking in terms of engagement level with an organisation.

So, if reward is not the only driving force for a better staff engagement and better performance behaviour, what else plays a part?

Many behavioural studies have linked motivation and higher staff engagement levels to basic factors like personal growth, recognition, challenge in the work environment and responsibility. Management expert Clay Christensen argues, “Motivation is much less about external prodding or simulation and much more about what is inside of you and inside of your work.” Hence, to put it bluntly, highly motivated employees are not always those who are paid better but those who feel a connection to their work and work environment. They share a mutual feeling of belongingness with the organisation they are associated with. These people do not feel controlled or restricted in the workplace.

Attempting to drive behavioural change in employees by means of reward or incentivization might not always be the solution. In the short run, this approach might seem to be bringing about positive results in terms of performance, but in the long run it can have devastating results. Hence, a workplace environment where the employees feel they have an opportunity to explore, grow, learn and progress will comprise of a highly motivated workforce. Rather than focussing on monetary or equivalent incentivization, and forcefully driving performance behaviour, managers should explore the intrinsic motivators such that a long-lived behavioural change can be brought about in the workforce.

As one of Harvard Business School’s professors, Teresa Amiable has explained in Forbes that the top two items that contribute to a continual growth of an employee are Catalysts and Nourishers. These can also be termed as the integral part of intrinsic motivators. A catalyst factor includes enablers in the work. Enablers can be things like clear goals and providing employees with adequate resources to accomplish those goals.

Similarly, Nourishers support employees inner work lives and include actions like respect in the workplace, recognition and providing emotional support in the work environment. Together these two factors help shape the sense of progress in the employees leading to a motivated workforce.

Although we cannot completely discount the role of incentivization in driving performance behaviour of employees to attain short term goals, but if a long term impact is to be considered, then organisations should focus more on the intrinsic motivators. These will help bring about positive behavioural changes in the employees resulting in a more motivated and dedicated workforce.

The author is the  Head-Bancassurance, Nepal at Standard Chartered Bank Nepal Limited.